Oil Pricing Dips, Debt Bubble Burgeons
~ Tracy Turner 11/20/2014
Barrels of sweet, light crude oil (the most traded of all forms of energy) settled at $95.71/barrel today (Nov. 21, 2014). Many Americans are asking, what is up with the cheap prices of Gas?
Cheap to whom: you, the American oil companies, or the Saudis? The talking heads on TV, including the oil companies’ talking heads energynow.org, etc., keep talking about America becoming the “leader” in energy production. What they don’t tell us is that America’s oil reserves are deep-water off shore, or more than 1 mile (+5,280 feet) deep. Conversely, the Saudis have both plentiful and easily accessible oil – which they can sell for as low as $65-70 U.S. per barrel. “Coincidentally”, the Marcellus Shale break-even price is $65-70 per barrel. When the Saudis flood the world market with cheaper oil as they are doing right now, it hurts the U.S. oil, gas and coal markets. The nearer the price gets to $65 dollars, the nearer the “plentiful, energy now” shill groups get to not even affording their brainwashing ads on TV.
Viewed another way, which would you rather burn, a barrel of oil or a half-ton of coal or thereabouts? The coal and liquefied petroleum gas (LPG) consortiums cannot compete with a $95 or worse a $65 barrel of Saudi oil. The mile deep Marcellus crude oil and LPG are not as accessible as Saudi light crude.
The oil sheiks sometimes appear eccentric and immature to westerners, part of the charm of men who are shrewd and even cutthroat in business. Gasoline (“Regular”) in California this week was $2.79 per gallon, the lowest it has been in several years. The low price is the Saudis in the process of semi-bankrupting U.S. oil concerns – bleeding them of stored up profits from over-priced gasoline and oil. The price is set by supply and demand via futures trading – right now everything Petroleum is and probably will continue to go down. The AstroTurf Energy Now! “Movement” advertisements on television are bound to go on hiatus as the Saudis push frackers to their “break even” point; keeping in mind “break even” includes payroll, equipment, liability insurance, EPA permits, etc.
The following is from the website, http://ourfiniteworld.com:
I would argue that falling commodity prices are bad news. It likely means that the debt bubble which has been holding up the world economy for a very long time–since World War II, at least–is failing to expand sufficiently. If the debt bubble collapses, we will be in huge difficulty.
Many people have the impression that falling oil prices mean that the cost of production is falling, and thus that the feared “peak oil” is far in the distance. This is not the correct interpretation, especially when many types of commodities are decreasing in price at the same time. When prices are set in a world market, the big issue is affordability. Even if food, oil and coal are close to necessities, consumers can’t pay more than they can afford.
The lower prices reflect what consumers can afford, not oil extraction prices. The same goes for cheaper food, it reflects short term what the market will bear, not what the food cost to grow. Lower food and oil prices reflect that wages are lower, unemployment much higher than admitted to and loans are scarce. The current low price bubble is a road flare of financial ruin around the bend.
Again, following bold text from http://ourfiniteworld.com:
Issue #1: Over the short term, commodity prices don’t reflect the cost of extraction; they reflect what buyers can afford.
Issue #2: Economic growth tends to produce a debt bubble
Issue #3: Repaying debt is very difficult in a flat or declining economy.
If we try to build a new system without fossil fuels, we will be really starting over, because even today's 'renewables' are part of the fossil fuel system. We will have to go back to things that can be made directly from wood and other natural products without large amounts of heat, to have truly renewable resources.
A person wonders whether this stalling debt growth is affecting world oil and other commodity prices.
Any economy that uses modern 'renewables' needs to be a fossil fuel economy, because it takes fossil fuels to make 'renewables,' and to repair the systems that they are part of, such as the electrical transmission system.
The combination of debt, inexpensive fossil fuels, and inexpensive resources of other kinds allows the production of affordable goods that raise the standard of living of those using them.
Businesses need to keep the total price of their products close to ‘flat’ despite rising oil prices, if they are to continue to sell as much of their product after the oil price increase as previously.
When oil prices rose, countries using a very high percentage of oil in their energy mix (such as the PIIGS in Europe, Japan, and United States) became less competitive in the world economy.
Now put yourself in the place of U.S. oil drilling operations and imagine your customer base, gorging on “cheap gasoline” every time the Saudis dump oil into the market. Both the SUV owner and the oil wildcats borrow money in a flat economy to cope with “cheap gasoline”. Only the Saudi Princes profit, everyone else contributes to the U.S. and world debt bubble and semi-bankruptcy of Dakotas oil drilling. Americans tend to grab credit cards to “stock up” on gasoline in their SUV’s. More flat economy hard-to-repay debt in a bubble ready to burst.
3. In the U.S., lower oil prices could slow the expansion of shale field exploration, a welcome development for foreign powers as skyrocketing American oil production has been one of the primary forces cutting oil prices this year. (68)
*Portugal, Ireland, Italy, Greece and Spain
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